Why health systems are losing their partners

Modern Healthcare – Thursday, June 26, 2025
By Alex Kacik

Health systems are ending strategic partnerships and refocusing on core operations as they brace for a potentially tumultuous financial future.

Recently ended affiliations include Seattle, Washington-based UW Medicine and Renton, Washington-based Valley Medical Center sunsetting a 14-year clinical alliance; Gaithersburg, Maryland-based Adventist HealthCare and Howard University terminating a hospital management agreement; and Winston-Salem, North Carolina-based Novant Health selling its minority stake in the Medicare Advantage plan HealthTeam Advantage to Greensboro, North Carolina-based Cone Health.

“We are seeing more strategic planning than ever before. Health systems are doubling down on their core services to make sure they are delivering services to the community as efficiently as possible,” said Michael Mayo, president and CEO of Jacksonville, Florida-based Baptist Health, which this month ended a clinical affiliation with Gainesville, Florida-based UF Health. “You have to have some discipline and rigor in evaluating partners.”

While reasons for ending a partnership vary, terminating collaborations is one way health systems can cut costs in preparation for potential federal reimbursement cuts through the budget reconciliation process, advisers and health system executives said.

The uncertain economic environment had a major impact on Valley Medical Center and is a key driver in its search for new partners, a hospital spokesperson said in a statement. Healthcare has changed significantly over the past decade as care has shifted to lower-cost, community-based, outpatient settings, the spokesperson said.

Partnerships can strain resources and increase expenses. Well-managed affiliations take a lot of energy, clearly defined roles, comprehensive long-term planning and effective communication, health system executives said. Without proper oversight and incentives, it’s relatively easy for partnerships to fall out of sync, they said.

For instance, if a health system has a management agreement with a community hospital that requires executives to oversee operations, that system may determine executives’ time is better spent on running internal, core operations, said Jordan Shields, partner at nonprofit hospital merger and acquisition advisory firm Juniper Advisory.

Joint operating agreements also typically require community hospitals to share a percentage of revenue with health system managers. Splitting revenue may not work in times of financial stress, Shields said.

“It is a stressful time for healthcare organizations. Providers are facing a massive headwind related to federal reimbursement — people are scared,” he said. “The most likely response to a big financial shock is to rapidly cut costs.”

Providers must regularly evaluate strategic partnerships, measuring those alliances against the financial and operating landscape, health system executives said. The industry changed drastically over the last decade, potentially rendering some health system affiliations obsolete.

More services have moved from hospitals to outpatient facilities and the home. Technology and electronic health records have advanced. The Medicare population has boomed. Health systems have expanded through mergers and acquisitions.

“Some of these partnerships have just run their course,” said Neil Rao, senior partner at consultancy McKinsey & Co. “A lot of it comes down to the value of the partnership relative to governance complexity and economic return.”

The outlook for a health system-run Medicare Advantage plan has also shifted as the market cooled over the past year, said Dr. David Blumenthal, a health policy professor at Harvard University. Running a health plan is not a hospital’s primary business, he said.

“It looked like Medicare Advantage was a golden goose that you couldn’t lose money on. But lo and behold, it turns out you can,” Blumenthal said. “A health system-owned MA plan may be draining resources in ways that were never anticipated. Hospitals can keep subsidizing an underperforming business or hunker down and get rid of it.”

Health systems are poised to more closely scrutinize joint ventures, clinical affiliations and management agreements as financial pressure grows, experts said.

Still, strategic partnerships will not go away, Mayo said. Health systems will put tight guardrails on the performance, adaptability, financial practicality and objectives of these collaborations, he said.

Bryan Health recently signed an agreement to help manage Pender Community Hospital. In December, the health system committed to launching a Medicare Advantage plan next year in a joint venture with Sioux Falls, South Dakota-based Sanford Health. However, Bryan Health will be selective in entering new arrangements, said Russ Gronewold, president and CEO of Bryan Health, a nonprofit system based in Lincoln, Nebraska.

“When difficult times like this come, health systems start looking inward, asking if partnerships are still serving their original purpose or if it’s time to peel them off because they’re not core to our mission or don’t provide enough return,” Gronewold said. “There is a lot more caution right now in affiliations because the one thing we are not looking to do right now is increase our overhead.”

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